“Rated Age” is the term used with regard to sub-standard or impaired life expectancy of a seriously injured person. A person may have a chronological age of 25, but a rated age of 50. This means that a medical actuary has determined that the person has the same life expectancy and mortality probabilities as those of a 50 year old. This represents a reduced life expectancy, thereby reducing the cost of any life contingent benefits.
Any reduction in life expectancy or “rated age” will depend on the severity of the health problem. Typical injuries resulting in a reduced life expectancy include spinal injury, brain damage, heart conditions, diabetes, cancer, aids, and depression.
It is possible though not likely. The problem is the typical person receiving settlement proceeds is unable to manage the money properly. Statistics show within two months after a cash settlement, 30% of the claimants have nothing remaining and by the end of five years, 90% have nothing left (National Law Journal, October 14, 1985.)
A structured settlement insures your money will not be mismanaged and is the only type of investment guaranteeing an exact rate of return. With other types of investments, the money is too accessible and easy to spend.
Professionals should realize that most work comp claimants and over 87% of other liability claimants have no actual investment knowledge nor do they meet the suitability laws to assume the risk. Professionals especially should remember that claimants usually live from pay check to pay check and have no extra income to be lost.
Dakota Structured Settlements, Inc. recently conducted a survey of 402 cases who received settlements and quotes from Dakota Structured Settlements, Inc. and did not take a periodic payment annuity. Of the claimants who took a cash settlement, 17% spent all of their money in three months, 47% in one year, 56% in two years, 78% in five years, 96% in seven years, with 98% having their principal at the end of ten years. The claimants invested with security firms, variable annuities, mutual funds, real estate, business ownership, and many other schemes, and the reason for the failure of these investments by the claimants was the accessibility of the principal for unexpected needs, such as buying your brother a pickup, or your sister’s husband could give you a better interest if you paid off his bank loan.
Of the 382 claimants who took advantage of the periodic payments act of being tax-free and guaranteed payments of interest and principal, Dakota Structured Settlements, Inc. has not received one complaint of income shortage. Of the claimants, 91% were in their own homes and meeting all of their bills and able to put some away for retirement. Remember a settlement replaces a loss, and with work comp it’s your ability to earn income for you and your family.
Probably. According to the IRS Private Letter Ruling 83-33035, the mere knowledge of the cost of the settlement is not constructive receipt of the funds. A private letter ruling, however, cannot be used as precedent by anyone other than the person to whom it is directed. The good news is that the logic and rationale underlying the ruling and the regulations it is based upon, indicated that in other cases the IRS would take a similar position.
Discussing the cost prematurely can lead to frustration in the negotiation process as parties begin to discuss how much is being spent and not the needs of the claimant or the benefits to be provided. In addition, negotiating on a cash basis could lead to constructive receipt if it appears that the claimant is controlling the funds and their investment.
Therefore, the decision to disclose the cost of an annuity is up to the casualty company.
